Houston Lawyer Blog

Can I go to jail for not paying a debt? Will a warrant be issued for my arrest tomorrow? Will my wages be garnished if I don't pay my debt immediately?

Most likely, the answer is no. Debt collectors will do almost anything to get you to pay a debt. Of course, there are state and federal laws in place to protect consumers. The Federal Trade Commission regulates debt collection through the Fair Debt Collection Practices Act (FDCPA). In Texas, the Texas Finance Code (TFC) and the Texas Deceptive Trade Practices Act (DTPA) provide even more protections to Texas consumers. The FTC released this video for guidance on how some of the federal laws apply to consumers and debt collectors.

In general terms, the federal law is very similar to Texas laws governing debt collection. However, Texas laws do provide some added protections not otherwise available in other states. For example, it is illegal to garnish wages in Texas. With a few exceptions for taxes and child support, a debt collector may not garnish a Texas consumer's wages.

In addition, the Texas Finance Code provides additional regulations for third-party debt collectors. A third-party debt collector must have a bond on file with the secretary of state in order to collect in the state of Texas. If not, any collection attempt is a violation of the law and actionable under TFC and the DTPA. Also, a consumer may dispute the accuracy of a particular collection item in writing at any time. Upon receipt of the written dispute, the third-party debt collector must cease collection efforts and conduct an investigation of the accuracy of the debt. In Texas, the third-party debt collector must respond with the results of the investigation within 30 days of receiving the consumer's dispute.

If a debt collector fails to follow these Texas or federal laws contact an attorney, the Texas Attorney General or the Federal Trade Commission. In some cases, you can collect from a collection agency instead of the other way around.

For more information see the following helpful links:

http://www.statutes.legis.state.tx.us/docs/fi/htm/fi.392.htm
http://www.ftc.gov/bcp/edu/pubs/consumer/credit/cre27.pdf
http://www.ftc.gov/

Houstonians and Texans alike have long been confused with credit scores, their meaning and overall composition.

The important thing to remember is that FICO (Fair Issac Corporation) scores are much more telling than any other scores available. Lenders, mortgage brokers and other credit institutions have long used FICO scores as the standard means of determining credit-worthiness. FICO's credit score model is a composite of factors such as payment history, credit utilization, length of credit history, types of credit and inquiries. The lower the FICO score, the higher the credit risk the consumer may be. FICO scores are the most used and trusted means of determining a consumer's credit worthiness.

However, this has not stopped other companies from developing their own schematics in terms of determining credit scores. In fact, the three major credit reporting agencies (Equifax, Experian and TransUnion) developed their own model to determine credit risk in order to cut into Fair Issac's market share. Up to this point, these efforts have not changed much in the minds of people in the credit business, as FICO scores are still the standard means of assessing credit risk.

The real dilemma is with the average consumer and their overall knowledge of types of scores, credit worthiness and overall credit risk. Many consumers receive scores from free websites or perhaps directly from the credit bureaus, which they believe are their true FICO credit scores. Unfortunately, this is not true, and can be very misleading in determining credit worthiness. In many instances, these FAKE-O scores may be inflated 40 points or more over traditional FICO scores. FICO scores can only be received from Fair Issac directly or from a lender that has pulled a consumer's credit report for the purpose of granting credit.

So, look for FICO rather than FAKE-O.

Many of the credit card companies are saying that the amount of consumer debt has decreased in recent months. Consumers are paying more than they are borrowing for the first time in a long time. In addition, recent reports state the number of consumer bankruptcies is down 18 percent since July. Are consumers finally getting tired of debt? Are we finally coming out of the country's deep recession?

The jury is still out on that front. One reason for decreased debt suggests that many Americans have defaulted on their credit cards and other consumer debt. Others state the lowered amount of bankruptcies is merely a result of the changes to bankruptcy laws, making it harder to file in the first place.

In any event, consumers need to fight their debt battles with smart spending strategies and better budgeting. Consumers need to realize that that new cardigan is not really worth it if you pay 29 percent interest. Ask yourself how much that cardigan is really costing you by the time you pay it off? You should always know your interest rates on your credit cards and other lines of credit. If you don't, then the cardigan could cost as much an IPAD by the time you pay it off.

Here are some simple tips to free yourself of debt:

1. Make a budget based on your monthly income and expenses.

2. Find out the interest rates on all your debt.

3. Work on paying down the higher interest debt first. Pay more on the higher interest debt than the lower interest debt, as your budget allows of course. There is no sense in paying anything more than the minimum payments on low or zero interest rate debt. If you are lucky enough to have low interest debt, you want to maximize that benefit as long as possible.

4. Make a timeline for when you want to get out of debt. Studies show that people who give themselves deadlines get much better results.

5. Separate the need purchases from the want purchases. By cutting down spending, you can devote more funds to your higher interest debt.

6. Do not use credit cards to survive! If your budget will not sustain your current standard of living, then do not compensate by using credit cards. Instead, adjust your budget to meet your current means. If necessary, cut up all your credit cards if you feel inclined to use them when you know you shouldn't. It wont cancel the card, but at least it will make it more difficult to use. (TIP: Do NOT cancel open revolving accounts, such as credit cards. Cancelling your open revolving credit will hurt your credit scores! Open revolving accounts are some the best things you can have on your credit report; try to have at least one open at all times.)

By changing your attitude towards debt and consumer spending, you can really make a huge impact in your overall life. You will find that you can spend the same amount of money but have more money in your pocket at the end of the day. Hopefully, by following these tips you will be one of the lucky people to be debt free.

Whoever said change is good was not referring to recent bankruptcy reform. On October 17, 2005, Congress instituted federal bankruptcy changes that were supposed to eliminate the "deadbeats" filing bankruptcy. The changes were designed to make it more difficult for those consumers trying to run from debt through bankruptcy.

Under the changes, the new first step is to undergo credit counseling. The counseling step is designed to analyze debt to income ratio and the ability to pay debt. The system is designed to determine which people could be steered into a debt management plan and away from bankruptcy. Moreover, this step is designed to deter abuse of the bankruptcy system. However, a study by the National Association of Consumer Bankruptcy Attorneys (NACBA) concluded that 97 percent of consumers were unable to repay any debt. More surprisingly, 79 percent of consumers were put into "dire financial straits by circumstances beyond their control, such as the loss of a job, catastrophic medical expenses or the death of a spouse."

Once a consumer concludes credit counseling, consumers face even more hurdles in determining which specific chapter to file. The two types of consumer bankruptcy chapters are 7 and 13. Chapter 7 provides the debtor a discharge of his or her debts via a liquidation of assets. In Chapter 13, the debtor receives a discharge through payment into a reorganization plan. Here, the debtor pays a monthly amount into a plan that cures overdue debts. In the past, Chapter 13 was not widely used as Chapter 7 provided a discharge without any obligation to pay debt. In addition, most people protected their most prized possessions through federal or state bankruptcy exemptions.

However, new hurdles like the "means" test has affected the eligibility of many would-be Chapter 7 filers. Now after the reform, debtors must pass what is known as the "means" test in order to file Chapter 7. A debtor is forced into Chapter 13 when he or she fails the "means test." The "means" test states that if the prospective filer's current monthly income (CMI) multiplied by 12 exceeds the median income for a family of the same size in the same state, then the debtor is forced to file Chapter 13 bankruptcy. This provision was designed to limit the number of people abusing the system. In reality, it creates a presumption of abuse. As a result, consumers are now given limited freedom in choosing which bankruptcy chapter to file.

The legislature did not leave out Chapter 13 in terms of change. It also endured an overhaul. For instance, the length of repayment plans is now five years. Also, unsecured creditors are now treated more favorably under bankruptcy laws. As such, Chapter 13 plans will not be approved if they provide less to unsecured creditors than if the debtor liquidated his or her assets in Chapter 7. As a result, some consumers might not be able to file bankruptcy at all.

Continue reading "Bankruptcy Reform: Fighting the Uphill Battle" »

Recently, a local news station filed a report on a Houston based company that has undergone a rash of consumer complaints. Consumers in Houston, and throughout Texas, are alleging that Telecheck, a check verification company, has been harassing them regarding debts from bad checks. Many of the consumers state that they had never even shopped at many of stores where the alleged bad checks were written.

If you are receiving phone calls and letters from businesses seeking to collect debts, there are certain guidelines they must follow to legally attempt to collect a debt. If you have knowledge of these guidelines, you can protect yourself and your credit. For example, debt collectors are not allowed to contact you outside of the hours of 8 am to 9 pm, unless they have your consent.

Surprisingly, debt collectors are allowed to contact other people in regards to your debt. However, they are limited to only asking questions about your address, home phone number, or place of business. It is illegal for a debt collector to discuss the debt with anyone other than you, your spouse, or your attorney. You may ask a debt collector to stop contacting you, but the only way to insure that this happens is by sending them a letter, certified mail, return receipt. Once you request no further contact, the debt collector must abide.

There are a number of things that debt collectors can and cannot say to you, according to both federal debt collection laws and Texas debt collection laws.

If these third party debt collectors violate federal and state laws, you may be able to pursue legal action. If the debt collector is found liable, you can collect for actual damages such as lost wages and medical bills. You may also be able to recover statutory damages and recover for your attorneys' fees and court costs. Arming yourself with the knowledge of what these debt collectors can or cannot due is your best protection for yourself and your credit.